Chemical Industry Recovers From Hurricanes, October Output Up

The global chemical industry has gotten off to a positive start in the fourth quarter with October seeing a rise in chemical production on the back of a recovery of the U.S. chemical industry from the effects of hurricanes and an upswing in the world economy, per the monthly report from the American Chemistry Council released yesterday.

Positive October Readings

The chemical industry trade group said that the Global Chemical Production Regional Index (CPRI) rose 0.4% in October on a monthly comparison basis. This follows a 0.1% decline in September, affected by hurricanes. The Global CPRI, which is measured using a three-month moving average, measures chemical production volumes for 33 major nations, sub-regions and regions. It is comparable to the Federal Reserve Board production indices.

Gains in production were witnessed across all regions in the reported month. The results were also favorable on a product basis in October. Gains were witnessed in all products barring pharmaceuticals and manufactured fibers.

The ACC also noted that the Global CPRI went up 2.7% year over year on a three-month moving average basis. Capacity utilization for the global chemical industry also recovered in the reported month and moved up 0.2 percentage points to 80.4%, up from 80.1% in October 2016.

The U.S. chemical industry also recovered from Hurricanes Harvey and Irma and started the fourth quarter on a positive note with output rising in October on gains across all chemical producing regions.

The ACC said that the U.S. CPRI increased 0.3% in October on a monthly comparison basis. This follows a 0.4% and 1.2% decline in August and September, respectively, hurt by the unfavorable impacts of disruptions from hurricanes.

Hurricane Harvey weighed on U.S. chemical production during the third quarter. A sizable portion of total U.S. production capacity was hit by the storm. Harvey led to the shutdown of several chemical plants along the Gulf Coast – the epicenter of the U.S. specialty chemicals and petrochemicals industry. A number of major chemical producers had to shutter or cut back ethylene production, leading to reduced supply of this major chemical in the third quarter.

Chemical Industry in Good Health

The chemical industry is back on the growth path after being roiled by the global economic crisis. The industry has enjoyed a positive run this year, helped by an improving global economy and continued strength across major end-use markets.

The Zacks Chemicals Diversified industry has outperformed the broader market year to date. The industry has gained around 25.5% over this period, higher than S&P 500's corresponding return of 18.3%.

Notwithstanding some lingering headwinds, the chemical industry's momentum is expected to continue through the rest of 2017 and into 2018, supported by continued strength across key end-use markets (such as automotive and construction) and significant shale-linked capital investment.

In particular, the prospects for the U.S. chemical industry looks bright. The American chemical industry is on course for strong growth this year and the next. The ACC envisions accelerated growth for the domestic chemical industry on the back of an improving global economy and a surge in shale-linked capital spending.

The shale gas bounty is expected to drive investment on plants and equipment in the United States. Chemical makers are ramping up investment on shale gas-linked projects to take advantage of ample natural gas supplies.

The European chemical industry is also finding traction again after staying down for a while. The business environment for the European chemical industry has improved on the back of improving global economic sentiment and a resurgent Eurozone economy.

Chemical Stocks to Consider

A few stocks that are worth considering in the chemicals space are Kronos Worldwide, Inc. KRO, Koppers Holdings Inc. KOP, Kraton Corp. KRA, The Chemours Company CC, Albemarle Corp. ALB and Celanese Corporation CE. While Kronos, Koppers and Kraton sport a Zacks Rank #1 (Strong Buy), Chemours, Albemarle and Celanese carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Kronos, Koppers and Kraton have expected earnings growth of 419.4%, 44.2% and 25.4%, respectively, for 2017. Chemours, Albemarle and Celanese have expected earnings growth of 265.2%, 24.8% and 11.5%, respectively, for the current year.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.   

See the pot trades we're targeting>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Albemarle Corporation ALB: Free Stock Analysis Report
 
Celanese Corporation CE: Free Stock Analysis Report
 
Kronos Worldwide Inc KRO: Free Stock Analysis Report
 
Koppers Holdings Inc. KOP: Free Stock Analysis Report
 
Chemours Company (The) (CC): Free Stock Analysis Report
 
Kraton Corporation KRA: Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research